John P. And Alice Bongiovanni v. Commissioner of Internal Revenue

HAYS, Circuit Judge:

The only point in contention on this appeal is whether Section 357('e) of the Internal Revenue Code of 1954, which imposes a tax on otherwise tax-free Section 351 transfers where the liabilities assumed by the taxpayer’s wholly-owned corporation exceed the adjusted basis of property transferred, applies to a cash basis taxpayer’s “liabilities” consisting of trade accounts payable. 1 The Com missioner determined that the transfer resulted in a taxable gain and the Tax Court affirmed his ruling. We reverse.

I. Factual Background

John P. and Alice Bongiovanni, husband and wife,…